Prosperity Watch Issue 12

Despite the positive news that North Carolina’s unemployment rate dropped again last month, from 9.9 percent in February to 9.7 percent in March, the long-term trajectory of the state’s labor market is still headed in a challenging direction. As the Division of Employment Security reported, the drop in the jobless rate in March is due almost entirely to a 7,852-person reduction in the labor force, the number of prime-age workers who are either employed or looking for work. This troubling drop suggests that the number of discouraged workers—those who drop out of the labor force after searching unsuccessfully for work for 12 months or more—is growing.

In a related problem, North Carolina’s jobs deficit—the number of jobs the state needs to create in order to return to pre-recession employment levels and keep up with population growth—grew again last month from 520,000 jobs to 528,000 jobs, after declining in February.

This jobs deficit includes the 217,800 jobs North Carolina lost in the Great Recession, plus the 310,200 jobs it needs to keep up with the 7.4% growth in population that the state has experienced in the 51 months since the recession began.

As these numbers indicate, the state’s jobs deficit is clearly going in the wrong direction and will continue to act as a drag on North Carolina’s economic recovery.

Although the unemployment rate dropped to 9.7 in March—a 0.2 decrease from February—this apparent improvement unfortunately masks a number of troubling trends in the state’s labor market. One such challenging trend involves the emergence of job growth in high-wage and low-wage sectors, but virtually none in middle-wage sectors long associated with middle class prosperity. As indicated by the chart, North Carolina has seen the emergence of a two-tier labor market in the years since the Great Recession, in which the sectors seeing the most employment growth either pay very high wages or very low wages, while middle-wage sectors—the traditional pathways to middle-class prosperity—have experienced either stagnation or significant job losses since March 2010.

On the high-wage end of this two-tier labor market, four sectors pay wages that are higher than the state average wage of $20.23 an hour and $42,068 per year according to the most recent Quarterly Census of Employment Wages—Manufacturing ($25.40 per hour), Financial Activities ($28.95 per hour), Information ($29.80 per hour), and Business Services ($24.15 per hour). Taken together, these sectors paid an average wage of $24.72 per hour, and experienced a 4.2% growth in employment from March 2010 to March 2012, although much of this increase was driven by the explosive 8.2% growth in Business Services employment. Along with paying higher wages, these sectors also generally provide pathways to upward career mobility and income growth over the long arc of a worker’s career.

On the low-wage end, four sectors paying an average of $14.45 an hour—almost 30% below the state average—also experienced a significant job growth rate, with a 3.2% increase in employment since March 2010. Trade, Transportation & Utilities pays $17.90 an hour; Mining & Logging pays $14.08 an hour; Miscellaneous Services pay $13.73; and Leisure & Hospitality Services—the fastest growing low-wage sector with a 4.3% increase since March 2010—pays by far the lowest wage in the state’s labor market, $8.45 an hour. Compared to high-wage sectors, these low-wage industries tend to provide less opportunity for career advancement and, as a result, generally do not afford workers a sustainable path for long-term income income growth and upward mobility.

Moreover, at the same time that the state is experiencing dramatic growth in these high- and low-wage sectors, the state has seen stagnation and job losses in middle-wage sectors like Construction, Education & Health Services, and Government, which together pay an average wage of $21.07, just over the state average. These sectors have traditionally provided workers with opportunities for a sustainable income and career advancement—unfortunately, since March 2010, these sectors saw less than 1% job growth.

In this two-tier labor market, some workers are able to find high-wage jobs and other workers are able to find low-wage work, but there is little in between. Without middle-wage jobs, there is significantly less opportunity for low-wage workers to achieve upward mobility, long-term income growth, and ultimately, middle-class prosperity.

Prosperity Watch Issue 12, No. 3:Rural counties are more vulnerable to local government budget cuts than urban counties

North Carolina’s total unemployment rate is showing small but steady improvement, but the employment gains are not shared equally by all communities in the state. Progress made in this uneven recovery continues to pass over many rural and low-wealth communities, where unemployment remains persistently high and job growth is stagnant – or, in some cases, negative.

At the same time, in many of these communities, local revenues have not made significant gains since the official economic recovery was declared in June 2010, and subsequently, local budgets remain tight. Since local governments function as sizeable employers in their counties — and not just as providers of public services — tight budgets can have a significant impact on a county’s jobs picture, and do so in ways that vary from county to county across the state. Overall, according to the Quarterly Census of Employment and Wages, County and city governments in the state employed 434,156 workers in 2010 – 11.5 percent of the state’s total workforce. In the state’s 20 most populous counties, the size of the local government workforce in relation to the total county labor market varies greatly, ranging from just 5.7 percent of the total Durham County workforce to 19.8 percent in Cabarrus County.

As the following map indicates, the story is dramatically different in the state’s rural counties, however. Local governments in rural counties employ 16.7 percent of the total workforce, a significantly greater share of the county’s workforce than the average of 11.3 percent in urban counties. In the most rural counties, local governments employ as many as one out of every three workers. The extreme in North Carolina is found in Swain County, where local government employed almost half the county’s entire workforce – 47.1 percent – in 2010. But in general, the share of local government employment in rural North Carolina counties falls within 10 to 20 percent of total county workforce. As a result, it is clear that rural counties are especially dependent on local government to employ large portions of their workforce, leaving the workers in these counties particularly vulnerable to public sector layoffs in times of tight budgets.

As local governments have struggled to balance their budgets amidst decreased support from both state and federal government, many have had to pursue cost-saving measures they would not have considered in the past, including layoffs. In 2010, 50 out of 92 North Carolina counties responding to a budget and tax survey reported having eliminated employee positions in response to budget shortfalls, and 20 counties reported laying off existing employees.

As a result, budget shortfalls place a particular burden on rural counties, since they have lower median incomes and lower assessed property values than more populous counties, making it less likely that they will be able to raise adequate revenue to avoid layoffs in bad budget years. Rural counties are also considerably more dependent on state and federal revenues to fund governmental operations than higher-wealth urban counties, making them more susceptible to budget shortfalls resulting from decreased support at higher levels of government on either the revenue or expenditure side.

Given the disproportionately greater role played by local governments in rural counties’ workforces, the economic and social impact of cutting local-government employment is consequently more damaging in low-income rural communities. Local-government workers in North Carolina earned $16.7 billion in wage income in 2010. If local governments cut jobs in response to budget pressures, it will drive up local unemployment and further strain county budgets as those who have lost their livelihoods turn to public assistance to mitigate their economic hardship. It will also resound through local economies, as laid-off workers will have fewer dollars to spend at businesses in their communities.

Prosperity Watch Issue 12, No. 2: What about North Carolina’s small towns?

In recent months, North Carolinians have continued to hear good news about the state’s labor market. The state’s unemployment rate for February dropped below 10% for the first time since 2009, while local unemployment rates—which are not seasonally adjusted—have dropped across 81 North Carolina’s counties since February 2011.

Despite these positive trends, however, it is clear that the state’s job gains are not occurring evenly across the state, and that some regions are experiencing a greater share of the state’s job creation than other regions. In fact, the lion’s share of North Carolina’s overall employment gains has occurred in the state’s 14 metropolitan areas, rather than in other, more rural regions. Since February 2011, 97% of the 84,000 jobs created in North Carolina have accrued to the state’s large cities. And over 56% these jobs were created in just three metro areas—Charlotte, Raleigh-Cary, and Greensboro-High Point—the most highly populated regions in the state.

By comparison, the combined employment gains of the state’s 26 micropolitan regions—essentially the state’s small towns with populations between 10,000 and 50,000 people—only account for 3.3% of the state’s total employment gains since February 2011. As a result, the state’s large cities are clearly outpacing its small towns in terms of job creation.

Perhaps the single most important factor contributing to these differences in economic performance involves the different trends in the labor forces of these two types of regions. As defined by the U.S. Bureau of Labor Statistics, the labor force includes those workers between the ages of 16 and 65 who are employed or who are looking for work—they are, in effect, the pool of workers available for a region’s businesses. In the state’s large cities, the labor force grew by 1.7% in the last year—which accounts for the entirety of North Carolina’s growth in workforce—while small- and medium-sized towns saw an 8.6% decline in their labor force.

Mirroring the long-term trend in population movement from rural to urban areas, this suggests that workers are leaving small and mid-sized towns for brighter employment prospects in the state’s large metro areas.

According to new labor market data for released by the Division of Employment Security for February, North Carolina’s economy continues to improve but still faces a long up-hill climb to replace the jobs lost in the Great Recession and to meet the demands of population growth. On the positive side, the unemployment rate dropped for the fifth straight month, from 10.2 percent to 9.9 percent in February. Additionally, labor force participation, a key measure of prime-age workers either currently employed or actively seeking employment, grew by 5,000 in February, following a 17,000 increase in the number of employed workers over the same period. Given that the percentage of the population currently employed improved from 55.6% to 56.7% in February, these data points suggest that the drop in the unemployment rate is genuinely reflecting higher employment in the labor market, and not simply discouraged workers dropping out of the labor force.

Despite this improvement, North Carolina is still lagging behind in terms of creating enough jobs to replace those lost in the 2007-2010 recession and to keep up with population growth of working-age North Carolinians. This is the state’s “jobs deficit,”—the number of jobs the state needs to create in order to catch up to these employment levels—which currently stands at 520,900. This represents a slight improvement from last month’s jobs deficit of 530,600 jobs, but nonetheless still indicates the long road North Carolina’s labor market needs to travel in order to fully recover from the recession.